During his recent wanderings on foreign soil, Prime Minister Manmohan Singh appears to have rediscovered the reformist in himself.
Flying in overnight from Rio, Manmohan Singh struck all the right notes on the economy. There was, he conceded, a compelling need to restore the growth momentum in the wake of the dramatic slowdown in the economy. The problems of fiscal management and of the balance of payment and of the current account deficit would all need to be tackled “effectively and credibly,” he acknowledged. More critically, he noted that obstacles or policy impediments that came in the way of foreign investment – both portfolio and FDI – would need to be removed.
And although Manmohan Singh declined to go into the specific policy corrections that the government would undertake to restore the confidence of everyone at home and abroad who is concerned about the policy paralysis in the wake of the slowdown, the tone of his comments suggests that at the very least, the government, which had been in denial about the slowdown and blaming it on events in Europe, is perhaps beginning to wake up from its slumber.
Simultaneously, outgoing Finance Minister Pranab Mukherjee said on Saturday that a slew of measures would be announced on Monday to address market concerns about the free-falling rupee, which risks stoking inflation and has shaken investor confidence.
Just why it took the government’s top two economic policymakers this long to acknowledge the gravity of the economic condition (here) that has been evident to most economic commentators isn’t immediately clear. Perhaps it was the recent action by international rating agencies (here), which made pointed criticism of the policy gridlock and the government’s patent failure to do the right things.
Or perhaps it needs the prospect of a monstrous crisis to get the government to realise, with characteristic understatement, that, yes, there might perhaps be a problem.
But the government’s initial round of criticism of the rating agencies’ action (here) pointed to a government living in self-denial, and to the extent that Manmohan Singh is articulating much the same concerns that rating agencies flagged as risks gives cause for optimism that that failure is being remedied.
As Firstpost had noted (here), Manmohan Singh has only a small time-frame – of about eight to 10 weeks – to undertake some of the big-ticket policy initiatives that global and domestic investors are looking for. The compulsions of going into election mode, first in Gujarat and later perhaps for Parliament, will propel the UPA’s populist instincts to kick in with vigour soon after. There is a very real sense that this is really the government’s last chance to rectify the economic follies of the past three years.
Manmohan Singh also appealed to political allies, particularly the Trinamool Congress, and the Opposition to work with the government to restore the momentum of growth. Given the fractures in the political formation, and the government’s own lack of political goodwill, that might be harder to achieve. In any case, it was as much the government’s own inhibitions, and the populist instincts of the Congress, that held back reforms nearly as much as recalcitrant allies.
Nevertheless, Manmohan Singh’s call merits serious consideration from parties across the political spectrum. Nobody gains when India fails, and thanks to the exertions of this government, the risk of economic failure stares India in the face.
Now that the Prime Minister has identified the policy prescriptions needed, it’s time for his government to show some resolve and get down to getting the job done.